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A ‘sandbagging’ clause is a business as well as a legal decision

Wednesday, July 26, 2017 @ 9:15 AM | By Andrew Bunston and Colin Cameron-Vendrig

There are few issues in a private M&A transaction as potentially divisive as the treatment of “sandbagging” in the purchase agreement. Sandbagging occurs when the buyer learns that one or more representations or warranties of the seller is inaccurate, the buyer does not communicate that knowledge to the seller, completes the transaction despite such knowledge and then seeks indemnification from the seller post-closing for losses arising from the inaccuracy.

Purchase agreements may include permissive clauses allowing sandbagging (“pro-sandbagging”), restrictive clauses that prevent sandbagging (“anti-sandbagging”) or they...